Uber is in crisis mode. Yet the business model created by Uber and used by other companies — including Lyft, Via and SideCar — is here to stay. For example, Google parent Alphabet is pouring $1 billion into supporting Lyft.
Numerous scandals are turning Uber into what’s called the “tech industry’s biggest troublemaker.” In June, Uber CEO and founder Travis Kalanick was forced to resign amid accusations of sexual harassment and discrimination, among other lawsuits. Last year, strict regulations in Austin led Uber to cease operations in the Texas capital. Each additional incident created another blow to the company that, for years now, has been seen as the world leader in ride-sharing and taxi services.
Still, Uber will continue to expand, introducing new innovations (some of which will succeed, others that will inevitably fail).
This is the atmosphere Dara Khosrowshahi, the former CEO of Expedia, is stepping into. He’s the new chief executive of Uber, and many predict he will need to greatly transform the company in order for it to survive.
Steven Hill of the New York Times presents a pessimistic view of the company’s future if Khosrowshahi does not take drastic steps to transform the company. But there’s reason for optimism. Uber has a strong future, and can maintain a competitive advantage over traditional taxi services.
While Uber remains a company that many love to hate, it has transformed the ride-sharing industry for the better, creating changes that will not be reversed in the foreseeable future.
In order to understand fully the success of Uber, we must look at where the taxi industry began. Traditionally within the United States, ride-share services have been facilitated through a system of taxi medallions, through which a city limits the number of permits for taxi drivers in order to decrease the supply of taxis and increase the cost of a ride for the consumer.
A taxi medallion wasn’t obtained through entrepreneurship or the creation of new business models or strategies. Instead, the buyer simply paid a large sum of money. In most other industries, obtaining a permit to operate based on nothing more than a large payment is called corruption. This traditional business model for taxis made it difficult for drivers to enter the business, thus increasing costs and discouraging the introduction of new ideas and innovations.
This outdated and archaic system hurts the taxi industry.
While other industries in the United States have thrived as entrepreneurs invest in new business strategies and innovative ideas, the taxi industry has been held back. It has been protected by a legal system that holds prices abnormally high and prevents new actors from participation in the market. Because of this, the emergence of ride-sharing projects like Uber can be the best thing that has happened to the taxi industry.
Uber is bringing prices for consumers down overall. Other innovations introduced by Uber make things much easier for riders, attracting business away from less-innovative taxi companies. The introduction of shared taxis for passengers traveling similar routes (UberPool) increases the company’s efficiency and better uses resources, while allowing consumers to decrease their carbon footprint.
Automatic payments, eliminating the need for a transaction to take place within a taxi, prevents fraudulent activity on both sides, and eliminates any confusion over the price or payment method. While these advancements are entirely possible in a traditional taxi company, it was Uber that took the step to implement the practices.
It must be noted that much of its success has been due to the company’s ability to skirt around many regulations, by labeling the business as an information sharing service instead of a transportation service. This distinction is the only way such a company would be able to operate, due to the strict regulations in many municipalities.
Of course, Khosrowshahi needs to implement many changes in the company’s management. However, these changes will not make or break the company. And despite criticisms from many, this is to the benefit of the taxi market and ride-share consumers. Uber and its model are here to stay.
Christopher Carson is a graduate student at George Washington University’s Elliott School of International Affairs in Washington. He wrote this for InsideSources.com.